Monday, August 22, 2011

What is Wealth, Anyway?

Most people see this as wealth, when it really isn't.  Money is just one aspect or representation of wealth.

If you asked most people what wealth was, they would give you a blank look and say, "well, money, of course!"

To us working-class schmucks, that is what we perceive as wealth - after all, money is what we chase most of our lives and we view people with a lot of it as "wealthy".

But money is, as I have noted before, an invention of mankind, and it is an idea - a symbol - that represents power and control - or basically power.  Wealth is not in owning "things" - it just allows you to do so - or more precisely, control things.  It is the control of things - and people - that is real wealth.

Consider the corporate executive who has a jet provided for him by his company.   He does not "own" the jet, and if you added up his balance sheet, that very expensive asset would not appear there.  Similarly, the corporate apartment they keep for him in the City may not be his - or the corporate condo.   But since he has control over these things, he in effect owns them - but by not owning them, he doesn't have to pay taxes on them.

Only chumps like you and me think in terms of actually owning things.  Or perhaps, if we think we are real clever and engage in some faux financial acumen, we think about leasing things.   But the bottom line is, for you and me, owning "stuff" is not wealth, but dissipation of it.

What wealth allows you to do is to make people do things for you - whether it is to clean your bathroom, cut your hair, or build you a moon rocket. When you have wealth or power - which are the same thing, really - you can control the actions of others around you.

Money, while an indicia of wealth, is not wealth itself, or even a good way of "keeping score" of wealth. Many very powerful - and thus wealthy - people have little in the way of personal wealth, but can control vast amounts of people and equipment and natural resources.   Consider the President, for example.  He can jet off to China in his own 747, or command a standing army.  It is a form of power - or wealth, if you will - that far outstrips his pitiful personal wealth or Presidential salary.

What does this have to do with personal finances? Not much,  Maybe a lot.   We all chase after wealth in this world, convinced it will make us happy.  But real wealth lies in the control of our own lives - as well as the ability to control (in a limited sense) the lives of others.  With a dollar bill, I can induce a farmer to plant a crop, harvest it, and bring it to market.  It is a powerful thing to have in your hand.

But most of us squander this wealth, myself included, to use that power to obtain things that we really don't need in life - or more things than we really need or want.

While having a fancy car, boat, house, or cell phone may appear to be an indicia of wealth, it really is an indicia of dissipation of wealth.  And for every "thing" we buy in life - and for every debt we take on to buy these things - we have to work harder and harder to keep up with the cost of these things.

Suddenly, it seems, we are the ones dancing to the tune played by the man with the dollar.   We are the ones being induced, like the farmer, to work at someone Else's beck and call.  And all so we can have some more "stuff" to park in our yard or clutter up our homes.

Being able to live with less is a form of power - a form of power that is available to more of us than things like corporate jets or the ability to invade other countries.   If you can live on less, you can be self-employed, work less, play more, do things, go places.  If you want to have a brand new car every three years, you have to have a job that provides only two weeks of vacation.

Who is wealthier?   The guy making all the money who has to be a slave to a job he hates so he can buy stuff to impress strangers with this apparent wealth?  Or the guy who can take time off when he wants to, because he has no onerous mortgage or car payments to make or cell phone bill to pay?

If you think of wealth in terms of stacks of dollar bills, or worse yet, cash flow, you might be inclined to think the first guy is wealthy and the second guy is poor.   But if you think in terms of what wealth really means - control over your own life and a means to an end, not an end in and of itself, well, then, the second guy is rich and the working stiff is poor.

Wealth is not stacks of dollar bills.  Wealth is power and control - starting with the power and control over your own life.

Many Americans, myself included, jumped on the bandwagon of consumption, thinking it was wealth itself, when in fact, it was a poor avatar.  While having things and paying for them through loans had the appearance of wealth, it was not real wealth.   So long as you had less and less control over your life for each new toy or obligation you took on, you were not really getting richer, but in fact, poorer and poorer.

For some folks, during the recent Real  Estate meltdown, this became a monetary reality as well as a philosophical one.  Once the housing market tanked, these folks found themselves heavily in debt on a home that would never, in their lifetimes, recover its value.   And thanks to onerous repayment terms, they could never afford to wait out the market in any event.   Suddenly, the frailty of the "apparent wealth" lifestyle became all-too-apparent.

The person with real wealth - little or no debts and little or no monetary obligations - didn't have to worry much about recessions and market meltdowns.   If you can live on little, a little is all you need to live on.  And that is a form of real wealth that is far easier to achieve and far easier for most of us to achieve in our lifetimes.